Stats SA released the retail sales data for December 2015 today. According to this latest survey, retail sales declined during the month, falling by -0.9%m/m, in real terms (seasonally adjusted). The month-on-month sales performance was a little worse than expected, which was a decline -0.7%m/m. In comparison, the November retail sales was much better than most analysts had expected. So overall retail sales had a good fourth quarter performance, rising by 1.3%q/q. This will boost the SA GDP performance in the fourth quarter, offsetting the decline in manufacturing. Overall, the retail data suggests that although consumer activity remains somewhat subdued, consumers have been able to avoid outright recession conditions.
On an annual basis, retail spending was up an impressive 4.1%y/y (real) in December 2015, but this was helped by a low base of spending in December 2014. This compares with growth of 3.8%y/y in November 2015 and an average annual growth rate of 3.3% (real) for 2015. The 12-month moving average rate of annual growth is trending at just over 3.0% (see chart attached), which is at the upper end of our earlier forecast range for retail sales during 2015. Clearly, the South African consumer has been helped by relatively low inflation in 2015; but this is forecast to change dramatically in 2016. We expect inflation to average 6.7% in 2016, ending 2016 at around 8%y/y.
Our overall perspective on retail spending remains essentially unchanged. Firstly, it is clear that although the growth in consumer spending has slowed noticeably during the past two years, the sector remains relatively resilient, helped enormously by the fact that household income growth consistently exceeds inflation due to above inflation wage increases in key sectors of the economy. Secondly, the consumer sector has also been helped by the fact that SA inflation averaged a mere 4.6% in 2015, reaching a low of 3.9%y/y during the year. This boosted real income growth. Thirdly, there are growing concerns about the negative impact of a sharp upward move in inflation during 2016, especially in the second half of 2016, potentially higher taxes in the February 2016 budget, weakening consumer confidence, an increase in user-charges (especially electricity, and water), and somewhat higher interest rates. Together, all of these will most likely slow retail spending to below 1% growth in 2016. Lastly, the critical factor that will determine whether the retail sector experiences an outright recession in 2016 as opposed to modest growth, is the performance of the labour market. Widespread job cuts would, most likely, push consumer spending in recession, whereas if the economy can at least maintain the current level of employment this would ensure that the consumer sector can avoid a recession in 2016.
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